When you are running a business, competing priorities can lead to unpaid debts being put on the back burner, and before you know it you might have a customer or client who has not paid their bill in quite some time.
Of course, the first port of call is always to resolve situations like this amicably, but if this is unsuccessful you might find yourself wondering if the debt is too old to recover through the Courts. Time is of the essence in recovering unpaid debts and it is important to know how long you have to take action.
What is the limitation period?
Under English and Welsh law, creditors have a limited window to seek legal remedies for debts. This is known as the ‘limitation period’. In this blog we will outline the key deadlines under the Limitations Act 1980, what you might be able to do to extend them, and what action you should take to give you the best chance of recovery.
Under Section 5 of the Limitations Act, If you are owed a debt under an ordinary contract, you have six years from the date on which the cause of action takes place to bring a claim.
It is important to note that this is not the date on which you issued the invoice, but the first date on which the debtor has failed to pay. For example, if you issue an invoice on the 23rd of September and your payment terms require payment to be made within 7 days, the 1st of October is when the six-month timer begins, as this is the first day on which the invoice is overdue.
It is important to know what your payment terms are to understand your limitation window. If your debt involves fraud or is for mortgage arrears, your limitation period may be different, but this is outside the scope of this blog.
Section 29(5) of the Limitations Act provides for an important exception to the six-year rule. If the debtor acknowledges the debt, or makes any part payment towards it, the timer resets. This means that if you have a debtor in a long-term payment plan, they cannot simply wait for the six years to expire and be safe in the knowledge that you cannot bring a claim.
It might be that you have already obtained a judgment against a debtor and are wondering how long you have to enforce this. Section 24 of the Limitations act allows enforcement of a judgment for another six years from the date of the judgment, so obtaining judgment on an older debt can extend your time limit significantly.
Alternative options
It is important to note that just because you cannot bring a legal claim after the limitation period, this does not necessarily mean you cannot recover the debt. The usual options of chasing, negotiating a settlement agreement, and trying to resolve the debt without legal proceedings are still available. Just be careful not to claim that you will be issuing proceedings if they fail to pay as this could be a breach of consumer protection regulations.
It’s also important to ensure you have effective credit control policies, as these can help prevent debts from becoming overdue in the first place. Regular communication with customers about overdue payments, sending reminders, and keeping records of any acknowledgments or partial payments are good strategies to keep the limitation period in check.
Comment
If you would like further details on the limitation period of your debt, or help in recovering a debt from a customer, our debt recovery team at Nelsons would be happy to help.
How can we help?
Joseph Collis is a Paralegal in our expert Debt Recovery team.
At Nelsons, our team in Derby, Leicester and Nottingham is experienced in dealing with these scenarios and can work with you to ensure you get the best results. If you need advice on recovering funds from a struggling debtor, including filing proof of debt forms, consult our Debt Recovery team, who will be happy to help.
Please contact us on 0800 024 1976 or via our online enquiry form.
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